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AXL vs. THRM: Which Stock Should Value Investors Buy Now?

Steel Dynamics (STLD) reported earnings 30 days ago. What's next for the stock? We take a look at earnings estimates for some clues.

Investors interested in Automotive - Original Equipment stocks are likely familiar with American Axle & Manufacturing (AXL) and Gentherm (THRM). But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.

There are plenty of strategies for discovering value stocks, but we have found that pairing a strong Zacks Rank with an impressive grade in the Value category of our Style Scores system produces the best returns. The Zacks Rank is a proven strategy that targets companies with positive earnings estimate revision trends, while our Style Scores work to grade companies based on specific traits.

Currently, American Axle & Manufacturing has a Zacks Rank of #2 (Buy), while Gentherm has a Zacks Rank of #4 (Sell). This means that AXL's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. However, value investors will care about much more than just this.

Value investors also try to analyze a wide range of traditional figures and metrics to help determine whether a company is undervalued at its current share price levels.

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Our Value category highlights undervalued companies by looking at a variety of key metrics, including the popular P/E ratio, as well as the P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that have been used by value investors for years.

AXL currently has a forward P/E ratio of 4.32, while THRM has a forward P/E of 17.88. We also note that AXL has a PEG ratio of 0.54. This metric is used similarly to the famous P/E ratio, but the PEG ratio also takes into account the stock's expected earnings growth rate. THRM currently has a PEG ratio of 0.72.

Another notable valuation metric for AXL is its P/B ratio of 1.10. The P/B ratio pits a stock's market value against its book value, which is defined as total assets minus total liabilities. For comparison, THRM has a P/B of 2.46.

These metrics, and several others, help AXL earn a Value grade of A, while THRM has been given a Value grade of C.

AXL stands above THRM thanks to its solid earnings outlook, and based on these valuation figures, we also feel that AXL is the superior value option right now.


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